We thank Clifford Smith, David Reeb, and participants at the 2005 Office Depot Small Business Research Forum for comments on previous versions of this paper.
A Note on Agency Conflicts and the Small Firm Investment Decision*
Article first published online: 20 DEC 2006
Journal of Small Business Management
Volume 45, Issue 1, pages 157–175, January 2007
How to Cite
Danielson, M. G. and Scott, J. A. (2007), A Note on Agency Conflicts and the Small Firm Investment Decision. Journal of Small Business Management, 45: 157–175. doi: 10.1111/j.1540-627X.2007.00205.x
- Issue published online: 20 DEC 2006
- Article first published online: 20 DEC 2006
This paper explains how agency conflicts—and potential agency conflicts—can influence the investment decisions of small firms, and provides evidence of these effects using data from a recent survey of small firm investment practices. The survey asks business owners to identify their most important investment concern—overinvestment or underinvestment. We find that underinvestment concerns are more prevalent in growing firms, and those with concentrated ownership and control structures. Overinvestment concerns increase as firms adopt less-concentrated ownership and control structures. These results suggest that the management challenges facing small firms shift as the degree of separation between ownership and control becomes greater.